LevaData Survey: 63 Percent of Automotive Executives Believe
Production Costs Will Increase Due to USMCA

With the U.S. Mexico Canada Agreement Negotiated and Tariffs Looming,
Automotive Executives Are Bracing for Major Changes to Their Supply Chain

January 10, 2019 09:00 AM Eastern Standard Time

SAN JOSE, Calif.--(BUSINESS WIRE)--LevaData,
the company that delivers applied AI to transform strategic sourcing and
procurement, has today released the results of a new survey of
automotive executives on the topic of the newly negotiated U.S.
Mexico Canada Agreement (USMCA), proposed tariffs on Chinese
products, and their likely effects on the automotive industry.

The survey of 100 U.S.-based automotive executives was conducted online
by Propeller Insights on behalf of LevaData in December of 2018.

Long-Term Benefits, Near-Term Drawbacks

The majority (78 percent) of automotive executives feel that the changes
required by USMCA will have a positive impact on their company in the
long term, and more than half (53 percent) feel USMCA will ultimately
increase North American vehicle manufacturing and provide a net
improvement for workers and consumers.

However, many of the participants acknowledge that production costs will
increase significantly, resulting in higher prices for consumers:

41 percent believe production costs will increase by 10 percent over
the next three years, and a significant number (26 percent) believe
the increase could be 25 percent or more.

58 percent agree these increases will results in higher costs for
consumers.

Electronic components were called out as one area where increased costs
are expected, with 39 percent agreeing USMCA will somewhat or
significantly impact costs. The impact of these increases will likely be
multiplied as these components increasingly make up a larger share of a
car’s overall cost.

In what might be a signal that layoffs similar to GM’s recent cuts are
coming, labor is highlighted as an area that will become more costly,
with 73 percent stating employee payroll costs will increase or their
workforce will be cut.

Big Changes Coming to the Auto Supply Chain

In addition to raising prices on finished goods, auto execs will
aggressively seek savings in the supply chain to reduce the impact of
higher production costs:

36 percent plan to renegotiate part supply deals to pass costs to
suppliers.

35 percent will look for cost savings in the production process.

Pressure to source components from suppliers near North American
assembly plants is also a top concern among auto manufacturers
specifically:

61 percent predict suppliers near assembly plants will be favored
somewhat or significantly.

78 percent cite finding North American suppliers or identifying
alternate suppliers as a near-term priority for their supply chain.

But the proposed tariff on $200 billion of Chinese goods is also top of
mind; 30 percent of the auto executives surveyed expressed concern about
the impact these tariffs could have on their company, compared to 9
percent concerned over USMCA’s impact.

“The adoption of USMCA, threats of tariffs on Chinese goods, and
concerns about the security of tech components made in China are going
to be major concerns for the automotive industry in the coming years,”
explained Rajesh Kalidindi, founder and CEO of LevaData. “Auto makers
will require a better upstream assessment of geopolitical risk
considerations going forward. Knowing where tariffs might be applied and
how they could impact cost and supply will be increasingly important —
and virtually impossible to manage in Excel.”